Financial Zip

Retirement is looming and you look in your bank or your portfolio and you realize that hardly anything is there. You begin to panic. Hold the phone step back. Yes, retirement especially for us these days can be a very scary proposition. When we don’t have all our ducks in a row it can feel a bit helter skelter. You usually have questions like this before retirement hits. Do I have enough saved? Have I picked the right investments? Is everything diversified? It is a lot to wrap your head around. Your just concerned about staying afloat and making sure all the bills are being paid for. Then all of a sudden retirement creeps up on you and now you have to consider working your golden years away.

So here are 6 simple steps you can take to ensure you are heading in the right direction for retirement. With these steps you don’t need to take a lot of time to do them. There are no spreadsheets you have to worry about. But I do encourage making sure you know where everything is. That is for another article. But this is simple to apply and it doesn’t take a lot of your time.

Know what you want

In my opinion you have to know what you want. Most financial planners and anybody that wants to achieve certain benchmarks in life need to know how much you want for retirement. It can be approximate not exact. The main thing here is you want to focus on things that you will be able to do in order to get to that mark. Be realistic, obviously you can’t have $10 million dollars saved for retirement in 2 years, unless your broker is amazing then you need to call and give me his number. So, know what you want and be realistic.

Start Now

There is two parts to this. I am a big believer that if you have debt that you need to get that paid of first. It doesn’t help to try to earn 10% on an investment if you have 8 credit cards that are eating away at you at 19%. Do the math. If it make you feel better to save a little then put a little away.

Now once you have most of you debt paid off get into an investment. If your company offers a 401(k), 403(b), 457 get into those. They will usually match what you put in so take advantage of it.

Savings for some people is a little tough. So if you have a hard time in the beginning try contributing 5% of your income at first. Then every year increase the amount 1% to 3%. If you do this overtime it will start to build very quickly and get you into a good habit of putting money away.

Automatically Save

From my experience and what I have seen if you are trying to save it is best that you don’t even see the money. If you are trying to save for retirement the best thing to do is go to your place of employment fill out a little form that says you want a certain potion of your paycheck to go to this account. Whether it is a mutual fund, IRA or whatever all you need is the account number to where the money is going and then it becomes automatic and less temptation to spend your retirement.

The other thing with automatic investing is that you can start investing with less money. Some accounts want a lump sum. But you can find plenty of accounts out there that allow you to contribute monthly, a lot of mutual funds have this feature.

Automatic saving also makes you a smarter and better investor. If you are investing regularly you are dollar cost averaging (just means you are able to buy more shares when the price is down) thus in the long run can increase your return which is the whole point anyway.

Don’t fuss over portfolio’s particulars

A lot of sites and especially mutual funds you can get lost in the details. Fancy terms like asset class, NAV etc… are a bit confusing. Other questions are what portion of my savings should go into a certain asset class? I will answer that for you with this simple rule (this is also based on your risk tolerance) put 60% of money in stocks and 40% in bonds. If your risk tolerance is higher adjust the percentage of stock higher.

If you really want it easy to use funds like the Fidelity Freedom Funds or Vanguards Target Retirement funds. They take the guess work balancing your portfolio. It will automatically adjust the balance based on when your target retirement date is.

The fewer the better

Don’t get to spread out with the funds that you choose. I would say stick to 2 if you get more than that then you get confused as to where your money is going.

Review, Review, Review

Any financial planner will say an I know this. The key to any plan is to have periodic maintenance. A couple things here,

1. Rebalance. In your portfolio you have achieved a balance of 60% stocks and 40% bonds. Be sure that is still in line with your goals if you need to rebalance do it.
2. Find more money. Keeping on top of things is important and if you are trying to save for retirement it is important to save all the money you can. That doesn’t mean live like a hermit but be sure to track the spending. That way you can identify places to save and use a little of that money to stash into your retirement.
3. Payoff your Debt first. If debt has got you in a bad way be sure to get that out of the way. Once out of the way use the money you were paying to debt to invest in your retirement and see the saving grow.

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Some Basics about Retirement Planning
The Way to Financial Independence